The worse the figures, the better

11.02.2019

Despite January’s disappointing macroeconomic key figures, the stock market had its best month for years. The MSCI World (in euros) rose by 7.4 percent, which is the biggest monthly return since October 2015.

The developments in January have almost been characterised by the worse the figures, the better it was for the stock market. The underlying logic of this rather ’perverted’-sounding statement is founded in the fear of further tightening of monetary policy that culminated in the fourth quarter of 2018. The current market dynamic for shares is therefore marked by the fact that when macroeconomic figures indicate a slowdown in growth, it becomes less likely that we will see further tightening of monetary policy by central banks in the near future. These are some of the key points from Chief Strategist David Bakkegaard Karsbøl from Sparinvest, in his latest monthly commentary.

The underlying premise here is that a tightening of monetary policy is worse for the stock market than decline in growth. However, this premise is a truth with modifications. If the growth perspective is too gloomy and the recession moves too close it will dominate the overall picture, and not even more conciliatory tones from the central banks will be able to generate good returns for the stock market.

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